UK's rising debts unsustainable if sweeping tax cuts go ahead, says IFS

Britain's mounting debts will be "unsustainable" if the government presses ahead with sweeping tax cuts in a mini-budget tomorrow, according to the tax and spending thinktank the Institute for Fiscal Studies.

- Phillip Inman

Fuelling concerns that the UK's precarious financial position will spark a run on the pound, the chancellor is expected to reverse a rise in national insurance payments and cut corporation tax at a cost of £30bn.

Kwasi Kwarteng will announce a review of his fiscal rules to allow the government to borrow more and is also expected to give away billions of pounds by cutting stamp duty on house purchases and confirm a multibillion rise in the defence budget to support Ukraine and boost growth.

These measures will be in addition to a freeze on energy prices for consumers and businesses that could cost more than £150bn over two years.

"Recent rapid increases in the cost of debt interest highlight the risks of substantially and permanently increasing borrowing and putting debt on an ever-increasing path," the IFS report said.

"There is no miracle cure, and setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best," it added.

Sterling fell to $1.138 - down from $1.22 last month and $1.40 last year - as traders switched to buying the dollar in advance of tomorrow's mini-budget.